How China Can Take the Wheel on Electric Cars

Here in the U.S. there’s a lot of excitement that 2011 could really be the Year of the Electric Car. GM is coming out with its plug-in model the Volt, Nissan has the all-electric Leaf and Ford has announced a line of plug-ins, hybrids and electrics. Throw in outside-the-box ideas like the Israeli startup Better Place, along with government support from the White House, and we could be looking at a battery-powered transport future.

But guess what–that transformation might happen somewhere else first. A new study prepared for the World Bank Transport Office in Beijing makes the case that China stands to lead and benefit from the global race to move to electric cars, perhaps faster than anywhere else—though significant obstacles could block that progress. “I don’t necessarily see China running away with this,” says Oliver Hazimeh, the head of the global e-mobility practice and a partner at PRTM, a management consultancy that put together the report. “But given the amount of money and resources that China can push at this, they will be extremely important.”

The study analyzes Beijing’s New Energy Vehicles Program, as well as the Ten Cities, Ten Thousand Vehicles Programs—to government initiatives launched in 2009 to create pilot programs for electric cars in a number of major Chinese cities. There’s no shortage of money behind the programs—China is committed to spending $15 billion on building and selling electric cars over the next five years. The government is already providing consumer incentives for Chinese drivers who want to go electric, and there is significant investment on research and development for electric cars—especially in battery technology. “They’ve allowed regions to do some experimenting, to see what strategies might work best,” says Hazimeh.

But money isn’t really the obstacle to the development of electric cars in China. There are policy and logistical challenges—there’s little infrastructure for charging private vehicles, even less than what’s available in the U.S. And then there’s the issue of customer acceptance. China is still in the middle stages of the automobile transition. The newly rich see cars as status symbols, so they want BMWs and Mercedes, or cars with powerful engines—not small electrics—while members of the rising middle class who might be buying their first car can’t necessarily afford the electric premium. (In the U.S., by contrast, automakers can count on a class of early adopters willing to spend more on electric vehicles, either for green reasons or simply to look cool.) “The demographics of the buying public are very different from what we see elsewhere,” says Hazimeh. “That’s one major challenge, but it won’t be the last.”

Still, China stands to uniquely benefit from a switch to electric cars. One is simple air pollution—the smog in cities like Beijing is simply horrific, and the prospect of adding millions more gasoline–powered cars won’t improve it. An electric fleet would be largely less polluting. But China, like the U.S., also has worries about dependency on foreign oil—half of its oil comes from abroad—and it’s only likely to get worse. China’s oil consumption is expected to rise from 7.6 million barrels a day in 2007 to 11.6 million barrels a day by 2020. “The government is definitely aware of those numbers,” says Hazimeh.

The study recommends $50 million in loans for pilot projects, including building better charging infrastructure. But Beijing doesn’t really need international help. China’s advantage is that the sheer rate of turnover in the country’s fleet means that it may be able to introduce electric cars sooner to consumers who haven’t become accustomed to a gasoline-powered life. The country’s automotive market is expected to grow to 30 million vehicles per year by 2030, up from 12.9 million in 2009. That—plus steady and heavy government assistance—might be enough to give China the lead in the electric car race.